Landlord wants to defer rent review - should I agree?
Landlord wants to defer rent review - should I agree?
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Discussion

Rockatansky

Original Poster:

1,832 posts

218 months

Friday 1st May 2009
quotequote all
Myself & my good lady wife run a small shop.

Our rent is reviewed every 3 years, and is due to be reviewed this summer.

The landlord has just been in to see us and proposed that he 'defers' the review until next year, with the next review being 2 years after that (bringing it back in line with the original 3 yearly schedule).

He's selling this to us as a good thing as it will peg our rent at it's current level for another year.

I'm thinking that in the 'current economic climate' the rent review might lead to a negligible (or nil?) rise in rent, but if it was to be reviewed in a year things *might* be better and lead to a greater rise in the rent.

Basically, I think he's trying to pull a fast one.

He wants our written agreement to his proposal, so, should we agree???

Martial Arts Man

6,703 posts

217 months

Friday 1st May 2009
quotequote all
Rockatansky said:
Basically, I think he's trying to pull a fast one.

He wants our written agreement to his proposal, so, should we agree???
Why would he do this if not to make a monetary gain?

Get an independant surveyor in to give you a market rate; sounds like he's terrified of being forced into a big drop.


I don't know this for sure, but I don't think there's much he can do if the surveyor pushes for a much lower rent and the arbitration cofirms this.


Rockatansky

Original Poster:

1,832 posts

218 months

Friday 1st May 2009
quotequote all
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.

Martial Arts Man

6,703 posts

217 months

Friday 1st May 2009
quotequote all
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Get it done now then!

smile

JustinP1

13,364 posts

261 months

Friday 1st May 2009
quotequote all
Indeed.

If it is done now, it stays the same for three years. Likely at the same cost it is now.

If he waits a year HE has lost nothing, but for the next 2 years has the chance to push another £100 a month. £2400 profit.

Say no.

Jasandjules

72,683 posts

260 months

Friday 1st May 2009
quotequote all
Uh, he is hoping that this time next year prices will be such that he can charge an increase.

Say "hell no"..... After all, you need to budget your business......

skwdenyer

18,707 posts

271 months

Friday 1st May 2009
quotequote all
Rockatansky said:
Myself & my good lady wife run a small shop.

Our rent is reviewed every 3 years, and is due to be reviewed this summer.

The landlord has just been in to see us and proposed that he 'defers' the review until next year, with the next review being 2 years after that (bringing it back in line with the original 3 yearly schedule).

He's selling this to us as a good thing as it will peg our rent at it's current level for another year.

I'm thinking that in the 'current economic climate' the rent review might lead to a negligible (or nil?) rise in rent, but if it was to be reviewed in a year things *might* be better and lead to a greater rise in the rent.

Basically, I think he's trying to pull a fast one.

He wants our written agreement to his proposal, so, should we agree???
What exactly does your lease have to say on the matter of rent reviews? The precise wording is critical as to whether this is good / bad / indifferent.

For instance, many leases say that the review can be at any time after the (in this case) 3rd, 6th, 9th and so on years, at the landlord's discretion. Often, if it is delayed, it can still be back-dated (which can be a shock...).

Do you have the exact wording?

Rockatansky

Original Poster:

1,832 posts

218 months

Friday 1st May 2009
quotequote all
skwdenyer said:
Do you have the exact wording?
Not to hand, I'll be able to check tomorrow.

IIRC it states that the rent is to be reviewed at the 3 and 6 year anniversaries of the lease and must be concluded within 3 months. There is the facility to refer it to a surveyor if the parties can't reach agreement.

I'll check tomorrow and post the exact wording.

davidjpowell

18,707 posts

215 months

Friday 1st May 2009
quotequote all
skwdenyer said:
Rockatansky said:
Myself & my good lady wife run a small shop.

Our rent is reviewed every 3 years, and is due to be reviewed this summer.

The landlord has just been in to see us and proposed that he 'defers' the review until next year, with the next review being 2 years after that (bringing it back in line with the original 3 yearly schedule).

He's selling this to us as a good thing as it will peg our rent at it's current level for another year.

I'm thinking that in the 'current economic climate' the rent review might lead to a negligible (or nil?) rise in rent, but if it was to be reviewed in a year things *might* be better and lead to a greater rise in the rent.

Basically, I think he's trying to pull a fast one.

He wants our written agreement to his proposal, so, should we agree???
What exactly does your lease have to say on the matter of rent reviews? The precise wording is critical as to whether this is good / bad / indifferent.

For instance, many leases say that the review can be at any time after the (in this case) 3rd, 6th, 9th and so on years, at the landlord's discretion. Often, if it is delayed, it can still be back-dated (which can be a shock...).

Do you have the exact wording?
There is a procedure for tenants to refer to third party now, so you would be able to force a review.

I would imagine that your landlord is hoping that rent will be higher in 12 months (assuming that he also intends to adopt Market Rent at that time and not simply deferring any possible increase from the actual Review Date).

I would be tempted to say no myself!

JustinP1

13,364 posts

261 months

Friday 1st May 2009
quotequote all
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Come to think of it, then I am not 100% sure that this able to be enforced.

The point of a clause like this in the contract is so that the contract is useful in the long term and you don't need to renegotiate lease terms each time a short term contract ends.

However, if the price of the rent only goes up with the market but cannot go down with the market this is an unfair term IMHO as it contains a significant imbalance in your agreement against you.

Martial Arts Man

6,703 posts

217 months

Friday 1st May 2009
quotequote all
JustinP1 said:
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Come to think of it, then I am not 100% sure that this able to be enforced.

The point of a clause like this in the contract is so that the contract is useful in the long term and you don't need to renegotiate lease terms each time a short term contract ends.

However, if the price of the rent only goes up with the market but cannot go down with the market this is an unfair term IMHO as it contains a significant imbalance in your agreement against you.
Are you saying that you think the contract could be null and void?

If so, where would that leave the OP? Could he be in a worse position at the end of it all?

davidjpowell

18,707 posts

215 months

Friday 1st May 2009
quotequote all
JustinP1 said:
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Come to think of it, then I am not 100% sure that this able to be enforced.

The point of a clause like this in the contract is so that the contract is useful in the long term and you don't need to renegotiate lease terms each time a short term contract ends.

However, if the price of the rent only goes up with the market but cannot go down with the market this is an unfair term IMHO as it contains a significant imbalance in your agreement against you.
This can be enforced 100%. It is a normal commercial term in a lease agreed between two business people. You have 2 hopes of it being classed as unfair - and one of them is bob hope.

JustinP1

13,364 posts

261 months

Friday 1st May 2009
quotequote all
Martial Arts Man said:
JustinP1 said:
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Come to think of it, then I am not 100% sure that this able to be enforced.

The point of a clause like this in the contract is so that the contract is useful in the long term and you don't need to renegotiate lease terms each time a short term contract ends.

However, if the price of the rent only goes up with the market but cannot go down with the market this is an unfair term IMHO as it contains a significant imbalance in your agreement against you.
Are you saying that you think the contract could be null and void?

If so, where would that leave the OP? Could he be in a worse position at the end of it all?
No, *if* that term was deemed to be unfair and it applies to the contract, it would mean that the contract would stand with just the offended term being removed.

Edited to add as the poster a minute ago has pointed out, the Unfair Terms regulations I am talking about only refer to consumer contracts - I missed the bit in the original post where this is a business lease on a shop and assumed they were a standard tenant.

Doh... my bad. back to where we were. Say no.



Edited by JustinP1 on Friday 1st May 18:37

Martial Arts Man

6,703 posts

217 months

Friday 1st May 2009
quotequote all
JustinP1 said:
Martial Arts Man said:
JustinP1 said:
Rockatansky said:
A drop would be nice, but it's written into our lease that the post review rent can't be less than the pre review rent - i.e. best case scenario is it stays the same.
Come to think of it, then I am not 100% sure that this able to be enforced.

The point of a clause like this in the contract is so that the contract is useful in the long term and you don't need to renegotiate lease terms each time a short term contract ends.

However, if the price of the rent only goes up with the market but cannot go down with the market this is an unfair term IMHO as it contains a significant imbalance in your agreement against you.
Are you saying that you think the contract could be null and void?

If so, where would that leave the OP? Could he be in a worse position at the end of it all?
No, *if* that term was deemed to be unfair and it applies to the contract, it would mean that the contract would stand with just the offended term being removed.
Would that be decided in a Law Court or at rent arbitration?

Sorry for all the questions!

davidjpowell

18,707 posts

215 months

Friday 1st May 2009
quotequote all
Law Court - but there would be no chance. I have not seen a lease with a rent review without the restriction on upward only ever. There is a code of practice which says that landlords should agree to upward / downward reviews - but they can (and will) ask for extra rent for the flexibility.

Smaller landlords often ignore the code in any case...

Ken Sington

3,964 posts

269 months

Friday 1st May 2009
quotequote all
speaking as a surveyor, the code of practice requires agreement from both sides to be included within the documentation. Doesn't sound like that's the case here. As recommended by others, say no and force agreement to a nil increase now

wattsm666

742 posts

296 months

Friday 1st May 2009
quotequote all
You should check to see if you have a break clause, it could be a way of negotiating a rent reduction, especially given the amount of space currently available. This could be risky though.

Chrisgr31

14,297 posts

286 months

Friday 1st May 2009
quotequote all
You should seek to agree a nil increase now, with the next review in 3 years. However the problem is the Landlord may well not agree.

In theory you could go to third party determination but that will cost money, and may cost enough to make the whole reason irrelevant!

We'll have to wait to see the whole clause to offer proper advice.

By the way I suspect it is unlikely that the market will have picked up by last year!

Rockatansky

Original Poster:

1,832 posts

218 months

Saturday 2nd May 2009
quotequote all
Thank you all very much for your comments so far.

For those who ahave asked, here is the part of the lease that deals with rent review. Apologies for the length...


lease said:
RENT REVIEW

DATE OF REVIEW

At the expiry of the third and sixth years of the Lease (the date of expiry of each such period being the “Date of Review”) the rent shall be increased to an amount (“the
Revised Rent”) equal to the market rental value of the Premises at the Date of Review.

VALUATION

2. The market value of the Premises shall be such an amount as shall be agreed
between the Landlord and the Tenant or as shall be determined in accordance with paragraph 3 below as representing the rental value of the Premises as between a
willing lessor and a willing lessee if offered for let on the open market under a lease for a period of ten years on the same terms and conditions as this Lease (save as to rent but including these provisions for rent review) with vacant possession upon the supposition (if not a fact) that:¬

(1) the Landlord and the Tenant have complied with all the obligations
undertaken by them respectively under the Lease (but without prejudice to any rights of either party in regard thereto); and

(2) all parts of the Premises are then available and fit for immediate occupation and use and that no work has been carried out on the Premises by the
Tenant, her sub-tenants or her predecessors in title during the period of the lease which has diminished the rental value of the Premises;

and taking no account of:-

(a) any goodwill attributable to the Premises by reason of any trade or business carried on therein by the Tenant or her predecessors in title or any permitted sub-tenant;

(b) any improvements to the Premises to which the Landlord shall have given written consent carried out by the Tenant ofher predecessors in title or any
permitted sub-tenant otherwise than in pursuance of an obligation to the Landlord;

(c) any destruction or damage to the Premises or any part thereof;

(d) the fact that the Tenant or her predecessors in title or any sub-tenant has or have been in occupation of the Premises;

(e) the effect of any statutory or other provision for the time being in force restricting, regulating or controlling the amount of rent which would otherwise be payable or recoverable under the Lease;

(f) any depreciatory effect on rental value arising as a result of any inability on the part of the willing tenant or those deriving or who have derived right from the willing tenant to recover any Value Added Tax (or other similar tax amending or replacing the same) paid on rents and other monies payable by the Tenant in terms of the Lease;

(g) any restrictions on the use of the Premises;

(h) the absence of any rent free period or reduced rent period or contribution towards fitting-out works or other inducement.

DECISION ON RENT VALUE

3. If the Landlord and the Tenant shall be unable to agree on the market rental value within three months of the Date of Review, it shall be determined by a Surveyor (who shall act and be deemed to act as an expert and not as an arbiter) to be agreed upon by the parties to the Lease, or if they fail so to agree, by a Surveyor experienced in the valuation of properties comparable to the Premises in the area where the Premises are situated to be nominated at the request of the Landlord by the Chairman for the time being of the Scottish Branch of The Royal Institution of Chartered Surveyors and the determination by such Surveyor shall be binding on both the Landlord and the Tenant. The whole expenses of any such Surveyor shall be payable as determined by such Surveyor.

RENT PAYABLE

4. Notwithstanding any determination by such Surveyor, the rent payable by the Tenant after each Date of Review shall not be less than the rent payable by the Tenant immediately before such Date of Review.

PAYMENT AFTER DATE OF REVIEW

5. If by any Date of Review the amount of the Revised Rent has not been agreed between the parties hereto or determined as aforesaid, then subject as aftermentioned in respect of the period of time beginning with the relevant Date of Review and ending on the Term date immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid the Tenant shall pay to the Landlord rent at the yearly rate payable immediately before the relevant Date of Review, and at the expiry of said period of time there shall be due as a debt payable by the Tenant to the Landlord on demand an amount equal to the difference between the Revised Rent and the rent actually paid in respect of the said period of time apportioned on a daily basis.

skwdenyer

18,707 posts

271 months

Saturday 2nd May 2009
quotequote all
Rockatansky said:
Thank you all very much for your comments so far.

For those who ahave asked, here is the part of the lease that deals with rent review. Apologies for the length...


lease said:
RENT REVIEW

DATE OF REVIEW

At the expiry of the third and sixth years of the Lease (the date of expiry of each such period being the “Date of Review”) the rent shall be increased to an amount (“the
Revised Rent”) equal to the market rental value of the Premises at the Date of Review.

VALUATION

2. The market value of the Premises shall be such an amount as shall be agreed
between the Landlord and the Tenant or as shall be determined in accordance with paragraph 3 below as representing the rental value of the Premises as between a
willing lessor and a willing lessee if offered for let on the open market under a lease for a period of ten years on the same terms and conditions as this Lease (save as to rent but including these provisions for rent review) with vacant possession upon the supposition (if not a fact) that:¬

(1) the Landlord and the Tenant have complied with all the obligations
undertaken by them respectively under the Lease (but without prejudice to any rights of either party in regard thereto); and

(2) all parts of the Premises are then available and fit for immediate occupation and use and that no work has been carried out on the Premises by the
Tenant, her sub-tenants or her predecessors in title during the period of the lease which has diminished the rental value of the Premises;

and taking no account of:-

(a) any goodwill attributable to the Premises by reason of any trade or business carried on therein by the Tenant or her predecessors in title or any permitted sub-tenant;

(b) any improvements to the Premises to which the Landlord shall have given written consent carried out by the Tenant ofher predecessors in title or any
permitted sub-tenant otherwise than in pursuance of an obligation to the Landlord;

(c) any destruction or damage to the Premises or any part thereof;

(d) the fact that the Tenant or her predecessors in title or any sub-tenant has or have been in occupation of the Premises;

(e) the effect of any statutory or other provision for the time being in force restricting, regulating or controlling the amount of rent which would otherwise be payable or recoverable under the Lease;

(f) any depreciatory effect on rental value arising as a result of any inability on the part of the willing tenant or those deriving or who have derived right from the willing tenant to recover any Value Added Tax (or other similar tax amending or replacing the same) paid on rents and other monies payable by the Tenant in terms of the Lease;

(g) any restrictions on the use of the Premises;

(h) the absence of any rent free period or reduced rent period or contribution towards fitting-out works or other inducement.

DECISION ON RENT VALUE

3. If the Landlord and the Tenant shall be unable to agree on the market rental value within three months of the Date of Review, it shall be determined by a Surveyor (who shall act and be deemed to act as an expert and not as an arbiter) to be agreed upon by the parties to the Lease, or if they fail so to agree, by a Surveyor experienced in the valuation of properties comparable to the Premises in the area where the Premises are situated to be nominated at the request of the Landlord by the Chairman for the time being of the Scottish Branch of The Royal Institution of Chartered Surveyors and the determination by such Surveyor shall be binding on both the Landlord and the Tenant. The whole expenses of any such Surveyor shall be payable as determined by such Surveyor.

RENT PAYABLE

4. Notwithstanding any determination by such Surveyor, the rent payable by the Tenant after each Date of Review shall not be less than the rent payable by the Tenant immediately before such Date of Review.

PAYMENT AFTER DATE OF REVIEW

5. If by any Date of Review the amount of the Revised Rent has not been agreed between the parties hereto or determined as aforesaid, then subject as aftermentioned in respect of the period of time beginning with the relevant Date of Review and ending on the Term date immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid the Tenant shall pay to the Landlord rent at the yearly rate payable immediately before the relevant Date of Review, and at the expiry of said period of time there shall be due as a debt payable by the Tenant to the Landlord on demand an amount equal to the difference between the Revised Rent and the rent actually paid in respect of the said period of time apportioned on a daily basis.
OK, thanks for that.

One particular point stood out as being potentially unfair to you, and indeed something a competent solicitor should have picked up, namely:

(g) any restrictions on the use of the Premises;

So, let's say your property has planning permission for an office. The strict implication of "any restrictions on use" being ignored for the purposes of the review is - to my eye - that the rent can be assessed based upon the use to which the premises could be put which would generate the greatest revenue (for instance, in my area, restaurant); the fact that there is no planning permission for such a use, and indeed that the lease may specifically prevent such a use, is apparently of no matter to the rent review process. If that's correct, that's very bad news I'm afraid. However, were that to go against you, I'd expect there to be a very actionable cause against your solicitor for allowing it to stand!

The other clause which is specifically relevant is clause 3, which includes that:

The whole expenses of any such Surveyor shall be payable as determined by such Surveyor.

The canny tenant will sound out a potential surveyor who is sympathetic to "the cause", and who believes that the landlord is unreasonable in not agreeing a new rent. In that case, such a solicitor could be chosen by you and would, one imagines, decide that it was only fair that the landlord pay all the fees smile

On that basis, I'd start sounding-out surveyors before forcing the landlord's hand, so that you have the surveyor lined up and ready to go.